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- **Document type:** Agency decision

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Conformed to Federal Register version
Securities and Exchange Commission
17 CFR Parts 230, 232, 239, 270 and 274
[Release No. 33-11238; 34-98438; IC-35000; File No. S7-16-22]
RIN: 3235-AM72
Investment Company Names
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
SUMMARY: The Securities and Exchange Commission (“Commission”) is amending the rule
under the Investment Company Act of 1940 (“Investment Company Act” or “Act”) that
addresses certain broad categories of investment company names that are likely to mislead
investors about an investment company’s investments and risks. The amendments to this rule are
designed to increase investor protection by improving, and broadening the scope of, the
requirement for certain funds to adopt a policy to invest at least 80 percent of the value of their
assets in accordance with the investment focus that the fund’s name suggests, updating the rule’s
notice requirements, and establishing recordkeeping requirements. The Commission is also
adopting enhanced prospectus disclosure requirements for terminology used in fund names, and
additional requirements for funds to report information on Form N-PORT regarding compliance
with the names-related regulatory requirements.
DATES: This rule is effective December 10, 2023.
FOR FURTHER INFORMATION CONTACT: Blair Burnett, Mykaila
DeLesDernier, Pamela Ellis, Senior Counsels; Bradley Gude, Branch Chief; Amanda Hollander
Wagner, Senior Special Counsel, or Brian McLaughlin Johnson, Assistant Director, at (202) 551-

6792, Investment Company Regulation Office, Division of Investment Management, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to
17 CFR 270.35d-1 (“rule 35d-1”) under the Investment Company Act; amendments to Form N1A [referenced in 17 CFR 239.15A and 17 CFR 274.11A], Form N-2 [referenced in 17 CFR
239.14 and 17 CFR 274.11a-1], Form N-8B-2 [referenced in 17 CFR 274.12], and Form S-6
[referenced in 17 CFR 239.16] under the Investment Company Act and the Securities Act of
1933 (“Securities Act”) [15 U.S.C. 77a et seq.]; amendments to Form N-PORT [referenced in 17
CFR 274.150] under the Investment Company Act; amendments to 17 CFR 232.11 (“rule 11 of
Regulation S-T”) and 17 CFR 232.405 (“rule 405 of Regulation S-T”) under the Securities
Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. 78a et seq.]; amendments to 17 CFR
230.485 (“rule 485”) under the Securities Act; and amendments to 17 CFR 230.497 (“rule 497”)
under the Securities Act.
I.

TABLE OF CONTENTS
Introduction and Background ................................................................................................ 4
A. Regulatory Context ................................................................................................................ 6
B. Developments and Analysis Informing Final Rule Amendments ......................................... 9
C. Overview of the Final Rules ................................................................................................ 18
1. Final Rules’ Principal Elements ...................................................................................... 18
2. Other Aspects of the Proposal ......................................................................................... 20

II.

Discussion ............................................................................................................................ 22
A. 80% Investment Policy Requirement................................................................................... 22
1. Names Suggesting an Investment Focus ......................................................................... 22
2. Temporary Departures from the 80% Investment Requirement ..................................... 52
3. Considerations Regarding Derivatives in Assessing Names Rule Compliance .............. 78
4. Unlisted Registered Closed-End Funds and BDCs ....................................................... 100
5. Effect of Compliance with an 80% Investment Policy ................................................. 104
B. Prospectus Disclosure Defining Terms Used in Fund Name............................................. 110
C. Plain English/Established Industry Use Requirement ....................................................... 115
D. Modernizing the Rule’s Notice Requirement .................................................................... 121
E. Form N-PORT Reporting .................................................................................................. 126
2

1. Investments to Be Included in a Fund’s 80% Basket .................................................... 127
2. Investment Company Act Names Rule Investment Policy ........................................... 133
F. Recordkeeping ................................................................................................................... 136
G. Unit Investment Trusts ....................................................................................................... 143
H. Compliance Dates .............................................................................................................. 146
III. Other Matters ..................................................................................................................... 149
IV. Economic Analysis ............................................................................................................ 150
A. Introduction ........................................................................................................................ 150
B. Broad Economic Considerations........................................................................................ 151
C. Economic Baseline............................................................................................................. 156
1. Fund Industry Overview ................................................................................................ 156
2. Market Practice.............................................................................................................. 158
3. Current Regulatory Framework..................................................................................... 160
D. Benefits, Costs, and Effects on Efficiency, Competition and Capital Formation.............. 163
1. Benefits .......................................................................................................................... 163
2. Costs .............................................................................................................................. 176
3. Effects on Efficiency, Competition and Capital Formation .......................................... 204
E. Reasonable Alternatives Considered ................................................................................. 208
1. Disclosure-Based Framework ....................................................................................... 208
2. Alternatives to 90-day Temporary Departure Limit...................................................... 210
3. Permit But Not Require the Use of Derivatives’ Notional Values for Purposes of Names
Rule Compliance ........................................................................................................... 211
4. Exclude Unit Investment Trusts from Requirements for Tagging Prospectus Disclosure
212
V. Paperwork Reduction Act Analysis ................................................................................... 213
A. Introduction ........................................................................................................................ 213
B. Rule 35d-1 .......................................................................................................................... 214
C. Prospectus Disclosure ........................................................................................................ 220
1. Form N-1A .................................................................................................................... 221
2. Form N-2 ....................................................................................................................... 222
3. Form N-8B-2 ................................................................................................................. 223
4. Form S-6 ........................................................................................................................ 224
D. Form N-PORT Reporting Requirements ........................................................................... 225
E. Investment Company Interactive Data............................................................................... 230
VI. Final Regulatory Flexibility Analysis ................................................................................ 233
A. Need for and Objectives of the Rule and Form Amendments ........................................... 233
B. Significant Issues Raised by Public Comments ................................................................. 234
C. Small Entities Subject to Rule Amendments ..................................................................... 235
D. Projected Reporting, Recordkeeping, and Other Compliance Requirements .................... 236
1. 80% Investment Policy Requirements – Scope Expansion and Other Amendments.... 237
3

2. Effect of Compliance with an 80% Investment Policy ................................................. 239
3. Recordkeeping Requirements........................................................................................ 240
4. Disclosure and Reporting Requirements ....................................................................... 241
5. Treatment of UITs ......................................................................................................... 243
E. Agency Action to Minimize Effect on Small Entities ....................................................... 243
Statutory Authority ..................................................................................................................... 246
I.

INTRODUCTION AND BACKGROUND
The Commission is adopting rule and form amendments that are designed to modernize

and enhance the protections that rule 35d-1 under the Investment Company Act, the “names
rule,” provides. This rule addresses the names of registered investment companies and business
development companies (“BDCs”) that the Commission defines as materially misleading or
deceptive. 1 The amendments the Commission is adopting update the rule and other namesrelated regulatory requirements to improve the protections that the rule provides, and to address
changes in the fund industry in the approximately 20 years since the rule was adopted.
In May 2022, the Commission proposed rule and form amendments that would update the
regulatory requirements associated with funds’ names. 2 The proposed amendments included an
expansion of the names rule’s scope, improvements to the requirements for funds’ investment
policies adopted under the names rule (including, among other things, specific requirements
addressing temporary departures from these policies’ requirements), updated notice
requirements, and new recordkeeping requirements. The proposed amendments also effectively
would have required that terms in a fund’s name be consistent with those terms’ plain English

1

This release refers to registered investment companies and BDCs collectively as “funds.”

2

See Investment Company Names, Investment Company Act Release No. 34593 (May 25, 2022) [87 FR
36594 (June 17, 2022)] (“Proposing Release” or the “2022 Proposal”). The Commission voted to issue the
Proposing Release on May 25, 2022. The release was posted on the Commission website that day, and
comment letters were received beginning the following day. The comment period closed on August 16,
2022. We have considered all comments received since May 25, 2022.

4

meaning or established industry use, and addressed materially deceptive and misleading use of
environmental, social, or governance (“ESG”) terminology in fund names. Finally, the 2022
Proposal included amendments that would require a fund to define the terms used in its name in
its prospectus, and amendments to Form N-PORT to add several new names-rule-related
reporting items.
The Commission received comment letters on the 2022 Proposal from a variety of
commenters, including funds, law firms, investor advocacy groups, environmental advocacy
groups, professional and trade associations, public policy research institutes, academics, and
interested individuals. 3 Many commenters expressed support for the names rule generally, and
the overall goals of improving and clarifying the regulatory framework related to fund names,
with some commenters recognizing that the names rule has not been revisited since its
implementation in 2001. 4 Comments on specific aspects of the proposed amendments, however,
were mixed. While some commenters generally supported the proposed scope expansion, as well
as the amendments addressing the operation of investment policies adopted under the names rule,
many others expressed concerns with these aspects of the proposal or suggested certain
modifications. 5 Comments on the proposed prospectus disclosure requirements were generally
supportive, but comments on the proposed new Form N-PORT reporting items were mixed, with

3

The comment letters on the Proposing Release are available at https://www.sec.gov/comments/s7-1622/s71622.htm.

4

See, e.g., Comment Letter of Better Markets (Aug. 16, 2022) (“Better Markets Comment Letter”);
Comment Letter of the Consumer Federation of America (Aug. 16, 2022) (“Consumer Federation of
America Comment Letter”) (each expressing support for the Commission’s efforts to modernize the names
rule, stating, respectively, that the rule has not been revisited since 2001, and it is “well past time” for the
Commission to revisit and update the names rule); see also Comment Letter of the CFA Institute (Aug. 22,
2022) (“CFA Institute Comment Letter”); Comment Letter of the Teachers Insurance and Annuity
Association of American and Nuveen, LLC (Aug. 16, 2022) (“TIAA-Nuveen Comment Letter”).

5

See infra discussion at sections II.A.1-II.A.4.

5

some largely objecting to these requirements or suggesting modifications and others arguing that
the proposed new reporting items would help promote transparency and accountability. 6
After considering the comments on the 2022 Proposal and as discussed in more detail
below, we are adopting amendments to the names rule, with some modifications based on the
comments we received.
A.

Regulatory Context

Congress provided the Commission with rulemaking authority to address materially
deceptive or misleading fund names, recognizing the concern that investors may focus on a
fund’s name to determine its investments and risks. 7 The names rule, in turn, responds to this
concern by helping to ensure that investors’ assets in funds are invested in accordance with
investors’ reasonable expectations based on the fund’s name.
The role of the names rule remains important and distinct from other disclosure
requirements. A fund’s name is not meant to supplant other required fund disclosure, and a name
cannot communicate everything about a fund’s investments, risks, and other features. The
Commission has historically stated that investors should not rely on an investment company’s
name as the sole source of information about a company’s investments and risks. 8 We continue
to encourage investors to look beyond a fund’s name to other information, such as disclosure
included in a fund’s registration statement, to obtain a complete understanding of a fund’s

6

See infra discussion at sections II.B and II.E.

7

15 U.S.C. 80a-34(d); Pub. L. No. 104-290, § 208, 110 Stat. 3416, 3432 (1996).; see also S. Rep. No. 293,
104th Cong., 2d Sess. 8-9 (1996).

8

See Investment Company Names, Investment Company Act Release No. 24828 (Jan. 17, 2001) [66 FR
8509 (Feb. 1, 2001)] (“2001 Names Rule Adopting Release”) at nn.4-5 and accompanying text.

6

investment objective, policies, strategies, and risks, as several commenters suggested. 9 A fund’s
name, however, is unique in several respects. It is typically the first piece of information that
investors receive about a fund. 10 Fund names offer important signaling for investors in assessing
their investment options. 11 Relatedly, incentives exist for asset managers to include terminology
in fund names that is designed to attract investor assets. 12
Section 35(d) of the Act prohibits a registered investment company from adopting as part
of its name or title any word or words that the Commission finds are materially deceptive or
misleading. 13 This section of the Act further authorizes the Commission to define such names or
titles as are materially deceptive or misleading. The Commission adopted the names rule in 2001
in exercise of this authority. 14
The current names rule generally requires that if a fund’s name suggests a focus in a
particular type of investment, or in investments in a particular industry or geographic focus, the

9

See, e.g., Comment Letter of Massachusetts Financial Services Company (Aug. 16, 2022) (“MFS Comment
Letter”); Comment Letter of Capital Research and Management Company (Aug. 16, 2022) (“Capital Group
Comment Letter”); Comment Letter of the Cato Institute (Aug. 12, 2022) (“Cato Institute Comment
Letter”).

10

See Comment Letter of the North American Securities Administrators Association, Inc. (Aug. 16, 2022)
(“NASAA Comment Letter”); see also Comment Letter of the Public Investors Advocate Bar Association
(Aug. 15, 2022) (“PIABA Comment Letter”) (stating that retail investors frequently base their purchase of
funds solely upon the name of the fund and “do little to investigate” the portfolio holdings or the specific
strategy of a fund beyond relying on the fund’s name).

11

See Comment Letter of U.S. SIF: The Forum for Sustainable and Responsible Investment (Aug. 16, 2022)
(“U.S. SIF Comment Letter”).

12

See Proposing Release, supra footnote 2, at n.6; see also, e.g., Comment Letter of the Center for American
Progress (Aug. 16, 2022) (“Center for American Progress Comment Letter”) (stating that the current
investing environment creates strong incentives for investment companies to name funds in ways that will
attract investors). But see Comment Letter of Benjamin Zycher, Senior Fellow, American Enterprise
Institute (Nov. 1, 2022) (“Zycher Comment Letter”) (arguing that “the implicit argument that firms or
funds have incentives to mislead or to adopt deceptive names is not correct” because funds’ reputations for
honesty are in funds’ long-term interests).

13

15 U.S.C. 80a-34(d). BDCs, which are not registered investment companies, are subject to the requirements
of section 35(d) pursuant to section 59 of the Act [15 U.S.C. 80a-58].

14

See 2001 Names Rule Adopting Release, supra footnote 8.

7

fund must adopt a policy to invest at least 80% of the value of its assets in the type of
investment, or in investments in the industry, country, or geographic region suggested by its
name. 15 Under the current rule, a fund generally may elect to make its 80% investment policy a
fundamental policy (i.e., a policy that may not be changed without shareholder approval) or
instead provide shareholders notice at least 60 days prior to any change in the 80% investment
policy. 16 An 80% investment policy relating to a tax-exempt fund, however, must be a
fundamental policy.
Currently, a fund is required to invest in accordance with its 80% investment policy
“under normal circumstances,” and a fund must apply its policy at the time the fund invests its
assets. If, subsequent to an investment, the fund’s assets are no longer invested in accordance
with the policy, the fund’s future investments must be made in a manner that will bring it into
compliance. The current rule also includes certain requirements for the notices that funds must
send prior to a change in an 80% investment policy that is not a fundamental policy.
In adopting the names rule, the Commission made clear that it is not a safe harbor for
materially deceptive or misleading names. 17 The prohibitions of section 35(d) and the anti-fraud
provisions of the Federal securities laws regarding disclosures to investors continue to apply to

15

The rule imposes a similar requirement for funds that have names suggesting that a fund’s distributions are
exempt from federal income tax or from both federal and state income tax (“tax-exempt funds”).

16

Under the Act, a fund may not deviate from a fundamental policy unless it has been authorized by the vote
of a majority of its outstanding shareholders. 15 U.S.C. 80a-13(a)(3). In this release, we refer to a policy
that a fund must adopt under the names rule as an “80% investment policy” and the fund’s investments
invested in accordance with this policy, the fund’s “80% basket.” We are adopting a parallel definition of
“80% basket” in the final amendments to the names rule, and when referring to the final amendments,
references to a fund’s “80% basket” refer to this definition. See final rule 35d-1(g) (defining “eighty
percent (80%) basket”); see also proposed rule 35d-1(g)(1) (defining “80% basket,” but otherwise identical
to definition in final rule).

17

See 2001 Names Rule Adopting Release, supra footnote 8, at paragraph accompanying n.16; see also
Proposing Release, supra footnote 2, at nn.13-15 and accompanying text.

8

funds notwithstanding their compliance with the names rule. 18 In addition, a fund must adopt and
implement written compliance policies and procedures reasonably designed to prevent violations
of the Federal securities laws generally, which—both currently, and following the Commission’s
adoption of amendments to the names rule—would include section 35(d) and the names rule. 19
B.

Developments and Analysis Informing Final Rule Amendments

The names rule has not been amended since its adoption in 2001. In past years, the
Commission and staff have received input about the operation of the names rule, as well as areas
for potential improvement, through a variety of venues. The Commission published a Request
for Comment on Fund Names in March 2020. 20 The 2020 Request for Comment sought public
comment on the framework for addressing funds’ names, particularly in light of market and other
developments since the rule’s adoption. The Commission received broad comments in response
to the 2020 Request for Comment and, as described above, in response to the 2022 Proposal. In
addition, staff in the Commission’s Division of Investment Management, particularly the
Division’s Disclosure Review and Accounting Office, receive input from funds on names rule
compliance issues regularly, for example during the course of staff’s review of fund registration
statements.

18

See Proposing Release, supra footnote 2, at n.14 and accompanying text.

19

See id. at nn.16-17 and accompanying text (also addressing the requirement for fund compliance officers to
discuss any material compliance matter involving the names rule in annual reports to the board on the
operation of funds’ compliance policies and procedures).

20

See Request for Comments on Fund Names, Investment Company Act Release No. 33809 (Mar. 2, 2020)
[85 FR 13221 (Mar. 6, 2020)] (“2020 Request for Comment”); see also Proposing Release, supra footnote
2, at section I.B (describing the input commenters provided in response to the 2020 Request for Comment).

9

Commenters generally recognized that investors view a fund’s name as an important
piece of information that communicates the fund’s objectives. 21 Several commenters expressed
that asset managers have an incentive to create fund names that are designed to attract
investors. 22 Many commenters, including funds and others, expressed their general agreement
that the names rule provides important investor protections and that the rule has been largely
effective in addressing misleading and deceptive fund names. 23 Commenters expressed support
for a requirement, such as the rule’s 80% investment policy provision, that requires a fund’s
underlying investments to correspond with the focus its name suggests in light of reasonable
investor expectations. 24 One, for example, with respect to funds’ use of ESG related terminology
in their names, stated that a naming requirement where “the underlying strategy and data must
significantly support the name” is a “basic consumer protection.” 25

21

See, e.g., Comment Letter of the Asset Management Group of the Securities Industry and Financial
Markets Association (Aug. 16, 2022) (“SIFMA AMG Comment Letter”); NASAA Comment Letter;
Consumer Federation of America Comment Letter; Comment Letter of Wellington Management Company
(Aug. 16, 2022) (“Wellington Comment Letter”); Comment Letter of Adriana Z. Robertson and Jill E.
Fisch (Apr. 20, 2023) (“Robertson-Fisch Comment Letter”); see also PIABA Comment Letter (asserting
fund names are particularly important for 401(k) plan investments, which employers make available from a
pre-determined list of options and comprise the entirety of retirement savings for many Americans).

22

See, e.g., Consumer Federation of America Comment Letter; Center for American Progress Comment
Letter; CFA Institute Comment Letter.

23

See Proposing Release, supra footnote 2, at n.20 and accompanying text; see also, e.g., Comment Letter of
Invesco Ltd. (Aug. 16, 2022) (“Invesco Comment Letter”) (“Since its adoption in 2001, the Names Rule
has provided an effective regulatory framework for ensuring that fund names are not materially deceptive
or misleading and has served to help investors understand what they can expect when they invest in a
fund.”); Comment Letter of the Investment Company Institute (Aug. 16, 2022) (“ICI Comment Letter I”)
The Investment Company Institute also submitted a separate comment letter dated December 6, 2022 (“ICI
Comment Letter II”), a comment letter dated May 22, 2023 (“ICI Comment Letter III”), and a comment
letter dated July 31, 2023 (“ICI Comment Letter IV”). Unless otherwise indicated, these letters are referred
to collectively as if they were a single letter (“ICI Comment Letter”).

24

See, e.g., Comment Letter of T. Rowe Price (Aug. 16, 2022) (“T. Rowe Comment Letter”) (discussing
effectiveness of current 80% investment policy requirement in aligning fund names with investor
expectations); CFA Institute Comment Letter (stating that the terms used in fund names should reflect the
fund’s “investment objective, strategies, and types of securities held” and that the current names rule
“provide[s] a level of assurance to investors”).

25

See Comment Letter of Amalgamated Financial Corp. (Aug. 16, 2022) (“Amalgamated Comment Letter”).

10

Some commenters expressed that certain changes to the names rule would be beneficial
to ensure that the rule continues to serve its investor protection purposes. Some of these
commenters expressed the view that the current scope of the rule does not cover all instances in
which fund names create the reasonable expectation that a fund will invest in a certain way. 26
Some also expressed concern that the current rule’s “under normal circumstances” standard
increases the risk that a fund’s investments will not be consistent with its name over an extended
period and that investors will be misled. 27 Commenters also suggested other, more technical
updates to the names rule, such as addressing how funds that use derivatives calculate
compliance with their 80% investment policies, and updating the rule’s notice provision to
reflect technological changes over the past two decades. 28
In considering updates to the names rule, both the Commission and commenters have
taken into account developments in the fund industry since the rule was originally adopted.
Registered investment companies manage considerably more assets today than they did in 2001
(with this amount nearly quadrupling), and the number of registered investment companies has
also increased—by close to 20%—in the two decades following the names rule’s adoption. 29

26

See, e.g., Consumer Federation of America Comment Letter (stating that “significant gaps and loopholes”
exist in the current rule); Center for American Progress Comment Letter; see also infra section IV.D
(estimating that approximately 62% of funds have names that implicate the current 80% investment policy
requirement).

27

See, e.g., NASAA Comment Letter; Comment Letter of the Environmental Defense Fund (Aug. 16, 2022)
(“Environmental Defense Fund Comment Letter”).

28

See Proposing Release, supra footnote 2, at section I.B; see also, e.g., ICI Comment Letter; Comment
Letter of J.P. Morgan Asset Management (Aug. 16, 2022) (“J.P. Morgan Asset Management Comment
Letter”).

29

See Investment Company Institute, 2022 Fact Book (2022) (“2022 ICI Fact Book”), available at
https://www.icifactbook.org/pdf/2022_factbook.pdf. In 2001, there were 8,860 registered open-end and
closed-end management investment companies, representing approximately $7.15 trillion in assets under
management. In 2021, there were 10,450 registered open-end and closed-end management investment
companies, representing approximately $28.2 trillion in assets under management. See also Fund Industry
Overview at infra section IV.C.1 (discussing fund industry statistics as of Dec. 2022).

11

Similarly, over this time period, it has become more likely that retail investors access the markets
through registered investment companies than through direct ownership of stocks and bonds. 30
Although the increase in the number of registered investment companies is modest compared to
the increase in registered investment companies’ assets under management, the number of funds
tells only part of the story about the breadth of fund investment options currently available. The
range of fund investment strategies has become notably more diverse over the past two
decades. 31
For example, the number of equity mutual funds and exchange-traded funds (“ETFs”)
that are sector funds (e.g., consumer, financial, utilities) increased by nearly 70% from 2001 to
2021. 32 Mutual fund and ETF assets in “thematic” strategies have surged over the past three
years, with data from Morningstar Direct identifying a record 589 thematic mutual funds and
ETFs debuting globally in 2021. 33 As of December 2022, Morningstar data categorized 334
domestic funds (including mutual funds, ETFs, and registered closed-end funds) as thematic

30

See Federal Reserve Bulletin, Changes in U.S. Family Finances from 2016 to 2019: Evidence from the
Survey of Consumer Finances (Sept. 2020), available at
https://www.federalreserve.gov/publications/files/scf20.pdf; Federal Reserve Bulletin, Recent Changes in
U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances, available at
https://www.federalreserve.gov/econres/files/2001_bull0103.pdf. The percentage of U.S. families holding
stocks and bonds directly decreased from 24.9% in 1992 to 16.3% in 2019. The percentage of U.S. families
holding pooled investment funds and retirement accounts (including individual retirement accounts, Keogh
accounts, and certain employer-sponsored accounts such as 401(k) and 403(b) accounts) increased from
33.3% in 1992 to 59.5% in 2019. Mutual funds made up a significant portion of defined contribution plan
assets (58%) and IRA assets (45%) at year-end 2021. In addition, the share of defined contribution plan
assets held in mutual funds has grown over the past two decades, from 44% at year-end 2001 to 58% at
year-end 2021. See 2022 ICI Fact Book.

31

See Proposing Release, supra footnote 2, at nn.21-22 at accompanying text.

32

See 2022 ICI Fact Book, supra footnote 29. In 2001, there were 452 sector equity mutual funds and ETFs;
in 2021, there were 757.

33

See Sonya Swink, Thematic Assets Have Surged – And Are Here to Stay, Ignites (Dec. 22, 2022), available
at
https://www.ignites.com/c/3870954/500734/thematic_assets_have_surged_here_stay?referrer_module=issu
eHeadline&module_order=1. These strategies are dominated by technology-related themes, such as
internet, blockchain, cloud computing, and cybersecurity (based on staff analysis of data obtained from
Morningstar Direct as of Dec. 15, 2022).

12

funds, comprising 4 “broad themes” (broad thematic, physical world, social, and technology), 27
“themes” (e.g., artificial intelligence and big data, food, space, and wellness), and 150
“subthemes” (e.g., health innovation, next gen auto, millennials and “Generation Z,” cannabis,
robotics, and travel/tourism). 34 While fund managers and others understand certain of these
thematic names to be included in the current scope of the names rule, there can be questions
about whether certain thematic terms suggest a focus in a particular type of investment, or in
investments in a particular industry or group of industries. As fund managers have incentives to
include “buzzwords” in their names to attract assets, and the current market for funds includes a
substantially broader variety of names suggesting a particular focus than two decades ago, a rule
providing specific requirements to address deceptive and misleading fund names for any fund
name that suggests a particular investment focus is even more relevant now than it was when it
was adopted. 35
Funds that consider ESG factors in their investment strategies comprise a thematic area
that entails unique considerations, and that involves the use of terminology that may be
especially powerful in fund names to attract investors. The use of ESG or similar terminology
(such as “sustainable,” “green,” or “socially responsible”) in fund names may present particular
investor protection concerns for several reasons. Investor interest in—and funds that offer—ESG
strategies have rapidly increased in recent years. 36 Asset managers have created and marketed

34

Id.

35

See supra footnote 12; see also NASAA Comment Letter (discussing the application of the names rule to
names suggesting a focus on “trendy ‘thematic areas,’ . . . including cybersecurity, blockchain/digital
assets, and artificial intelligence”).

36

See Proposing Release, supra footnote 2, at n.120 and accompanying text. See also, e.g., Letter from
Morningstar to Chair Gary Gensler (June 9, 2021) attaching, Sustainable Funds U.S. Landscape Report --More funds, more flows, and impressive returns in 2020, Morningstar Manager Research (Feb. 10, 2021),

13

funds that consider ESG factors in their selection process, and these funds can attract significant
interest and stand out to investors by using ESG and related terms in their names. Approaches to
ESG investing vary, however, and funds that consider ESG factors have strategies that vary in
the extent to which ESG factors are considered versus other factors. The breadth of ESG-related
terms, as well as evolving investor expectations around terms like “sustainable” or “socially
responsible,” compound the possibility of investor confusion and potential “greenwashing” in
fund names. 37
In consideration of the broad public input the Commission has received on fund names,
our analysis of this input, the Commission and staff’s experience with the names rule over the
past two decades, developments in the fund industry, and the growth of the fund industry and
families’ investments in funds during this time period, we are adopting amendments to the names
rule (and related disclosure and reporting requirements) to modernize the rule and to enhance the
investor protections it currently provides. First, it is in investors’ interests to align the rule’s
scope and requirements better with the policies and purposes underlying the rule. The
Commission has stated that the 80% investment policy requirement “will provide an investor

available at https://www.sec.gov/comments/climate-disclosure/cll12-8899329-241650.pdf; ESG in 2021 So
Far: An Update, M. Gerber, G. Norman, and S. Toms, Harvard Law School Forum on Corporate
Governance (Sept. 18, 2021), available at http://corpgov.law.harvard.edu/2021/09/18/esg-in-2021-so-faran-update/; ESG assets may hit $53 trillion by 2025, a third of global AUM, Bloomberg Intelligence (Feb.
23, 2021), available at https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by2025-a-third-of-global-aum/; Amalgamated Comment Letter, NASAA Comment Letter, U.S. SIF
Comment Letter, CFA Institute Comment Letter (all discussing investor interest in funds with ESG
strategies and names).
37

“Greenwashing” involves the risk that funds marketing ESG strategies may exaggerate their ESG practices
or the extent to which their investment products take into account ESG factors. See, e.g., Comment Letter
of Public Citizen (Aug. 15, 2022) (“Public Citizen Comment Letter”) (discussing evolving investor
expectations around ESG terms). But see Robertson-Fisch Comment Letter (“interrogating the concept of
greenwashing” and comparing the portfolios of funds with ESG terminology in their names to the
portfolios of “sister funds” – “the non-ESG fund in the same fund family most comparable to the ESG
fund” – with the authors concluding that little evidence of greenwashing exists).

14

greater assurance that a [fund’s] investments will be consistent with its name.” 38 This
requirement addresses circumstances in which a fund’s name may be materially deceptive or
misleading, in exercise of the Commission’s rulemaking authority under section 35(d). The
amendments we are adopting address fund names that are not currently within the scope of the
rule, or where the current scope of the rule has created interpretive issues. 39 These names may
entail a capacity to deceive or mislead because they suggest a particular investment focus, which
in turn offers an important signal, or entry point, to investors that are researching their
investment options. 40 For these names—like the names currently within the rule’s scope—the
80% investment policy requirement would provide investors greater assurance that these funds’
investments are consistent with the manner in which a fund defines the terms in its name, which
must be consistent with plain English or established industry use and disclosed in its prospectus.
We therefore anticipate that including these names in the names rule’s scope will bring more
discipline to fund naming practices and more meaningful names that convey the funds’
investment focuses, while allowing funds the flexibility to ascribe reasonable definitions for the
terms used in their names. 41 That is, the decision to include terms in a fund’s name that suggest
an investment focus, including a focus in investments that have or whose issuers have particular

38

See 2001 Names Rule Adopting Release, supra footnote 8.

39

For example, the Commission has previously taken the position that fund names that incorporate terms
such as “growth” and “value” connote an investment objective, strategy, or policy (i.e., “investment
strategies”) and are therefore not within the scope of the 80% investment policy requirement. This has
resulted in some fund names being excluded from this requirement because the name contains a term
suggesting an investment strategy, even if the name also suggests an investment focus to investors. See
Proposing Release, supra footnote 2, at paragraph accompanying n.23; see also infra section II.A.1.

40

See In the Matter of the Private Investment Fund for Governmental Personnel, Inc., Investment Company
Act Release No. 2474 (Jan. 18, 1957) (the Commission has historically expressed that, in considering
whether a name is deceptive or misleading, “[a]ctual deception of investors need not be shown, it is
sufficient if the name of the company is found to have a tendency or capacity to deceive or mislead”).

41

See NASAA Comment Letter; see also CFA Institute Comment Letter. But see, e.g., infra footnote 75 and
accompanying text.

15

characteristics, will now require the fund to adopt an 80% investment policy and to define the
terms used it its name. 42
Similarly, these amendments are designed to promote greater specificity in the operation
of funds’ 80% investment policies to enhance investor protection by helping to ensure that funds’
names are not misleading as their portfolios may shift over time—either because of inadvertent
portfolio “drift” or intentional departures from the 80% requirement. 43 When an investor chooses
to invest in a fund, that person has made an intentional decision to invest in, for example, the
type of asset class, industry, or sector in which the fund’s name suggests an investment focus.
That investor has a reasonable expectation that the fund’s investments will generally remain
focused in the area that the fund’s name indicates. 44 We appreciate, however, that a naming rule
that requires unwavering adherence to a particular investment threshold risks harming funds and
investors. 45 This rigidity ultimately could result in investor harm if portfolio managers were not
permitted to depart from their 80% investment policy for a limited time to manage their funds
appropriately in response to changing circumstances. 46 The amended rule enhances investor
protection by requiring funds to conduct at least quarterly reviews of their portfolio investments
for consistency with the 80% investment policy requirement, and by adopting time frames to
remedy departures from 80% that seek to balance investors’ reasonable expectations with

42

See infra sections II.A.1 and II.B.

43

See, e.g., Consumer Federation of America Comment Letter (discussing the risk of funds changing their
portfolios such that the portfolios are no longer accurately reflected by the funds’ names).

44

See, e.g., Center for American Progress Comment Letter (stating that investors’ expectations and
investment practices often assume that investments in a fund will remain consistent with the name over the
longer term, and investors who wish to change their own mix of investments typically do so by changing
funds).

45

See, e.g., ICI Comment Letter; J.P. Morgan Asset Management Comment Letter; Comment Letter of
Dimensional Fund Advisors LP (Aug. 16, 2022) (“Dimensional Comment Letter”); Comment Letter of
Dechert LLP (Aug. 16, 2022) (“Dechert Comment Letter”); see also infra section II.A.2.

46

See, e.g., SIFMA AMG Comment Letter; T. Rowe Comment Letter.

16

appropriate flexibility for advisers, consistent with their fiduciary duty, to manage funds’
portfolios.
Our disclosure and reporting framework can provide additional tools, in connection with
technological developments over the past two decades, to augment investors’ and other market
participants’ understanding of fund names and to increase transparency of how a fund’s
investment portfolio reflects the investment focus that its name suggests. In the years since the
names rule was adopted, the Commission has adopted requirements to modernize reporting
requirements for registered investment companies, which build on significant advances in the
technology that can be used to report and analyze information—namely, the use of structured
data language. 47 We recognize that there are many types of fund names for which understanding
additional detail about how name terms are defined, and about the types of investments that the
term describes, would provide greater clarity to an investor about the fund’s investment focus.
This may be helpful if, for example, fund names that incorporate terms that may reflect new
themes or technologies become more prevalent. The final rules’ enhanced prospectus disclosure
and reporting provisions, which require information to be disclosed in structured data language,
are designed to address this goal.
Finally, we are incorporating certain updates to the names rule to address industry and
technological developments over the past two decades, and to address names-rule-related
recordkeeping.

47

Investment Company Reporting Modernization, Investment Company Act Release No. 32314 (Oct. 13,
2016) [81 FR 81870 (Nov. 18, 2016)] (“Investment Company Reporting Modernization Adopting
Release”); see also Amendments to the Timing Requirements for Filing Reports on Form N-PORT,
Investment Company Act Release No. 33384 (Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)]; Proposing
Release, supra footnote 2, at n.115 and accompanying text (generally discussing rules requiring funds
registering on Forms N-1A and N-2 to submit certain information using Inline XBRL format).

17

C.

Overview of the Final Rules
1.

Final Rules’ Principal Elements

We are adopting amendments to the names rule, as well as related disclosure and
reporting requirements, in consideration of the issues discussed above.
•

Expansion of Scope. We are adopting, substantially as proposed, amendments to

the names rule that expand the rule’s 80% investment policy requirement beyond its current
scope, to apply to any fund name with terms suggesting that the fund focuses in investments that
have, or investments whose issuers have, particular characteristics. This coverage will include,
for example, fund names with terms such as “growth” or “value,” or terms indicating that the
fund’s investment decisions incorporate one or more ESG factors. These names will be added to
the names that are currently within the scope of the 80% investment policy requirement—that is,
generally, fund names that suggest a focus in a particular type of investment, or investments in a
particular industry or geographic focus, and fund names suggesting that a fund’s distributions are
tax-exempt.
•

Temporary Departures from the 80% Investment Requirement. In a change from

the proposal, under which funds would have been permitted to depart from the fund’s 80%
investment policy only under certain specified circumstances, the final amendments retain the
names rule’s current requirements for a fund to invest in accordance with its 80% investment
policy “under normal circumstances” (the “80% investment requirement”), and for the 80%
investment requirement to apply at the time a fund invests its assets. Also, in a change from the
proposal, the final amendments add a new provision that requires a fund to review its portfolio

18

assets’ inclusion in its “80% basket” at least quarterly. 48 Like the proposal, the final amendments
include specific time frames—generally 90 days, as opposed to 30 days as proposed—for getting
back into compliance if a fund departs from the 80% requirement as a result of drift or in otherthan-normal circumstances.
•

Derivatives. Consistent with the proposal, the final amendments generally require

funds to use a derivatives instrument’s notional amount to determine the fund’s compliance with
its 80% investment policy, with certain adjustments. In a change from the proposal, the final
amendments include a limited modification to this approach that would exclude certain currency
hedges from the names rule compliance calculation. As proposed, we are also amending the
names rule to address the derivatives instruments that a fund may include in its 80% basket.
•

Unlisted Registered Closed-End Funds and BDCs. Consistent with the proposal,

the final amendments generally prohibit an unlisted registered closed-end fund or BDC that is
required to adopt an 80% investment policy from changing that policy without a shareholder
vote. In a modification from the proposal, the final amendments permit these funds to change
their 80% investment policies without such a vote if: (1) the fund conducts a tender or repurchase
offer with at least 60 days’ prior notice of the policy change, (2) that offer is not oversubscribed,
and (3) the fund purchases shares at their net asset value. 49
•

Enhanced Prospectus Disclosure. Substantially as proposed, we are adopting

amendments to funds’ prospectus disclosure requirements that will require a fund to define the

48

See final rule 35d-1(g) (defining “80% basket” generally as investments that are invested in accordance
with the investment focus that the fund’s name suggests).

49

See infra footnote 292 (discussing the use of net asset value in the event of a tender offer, as well as a
repurchase offer).

19

terms used in its name, including the criteria the fund uses to select the investments that the term
describes.
•

Plain English Requirements for Terms Used in Fund Names. The final

amendments to the names rule, as proposed, effectively require that any terms used in the fund’s
name that suggest either an investment focus, or that the fund’s distributions are tax-exempt,
must be consistent with those terms’ plain English meaning or established industry use.
•

Form N-PORT Reporting Requirements. Consistent with the proposal, we are

adopting amendments to Form N-PORT for funds to report the value of the fund’s 80% basket,
and whether an investment is included in the fund’s 80% basket. In a change from the proposal,
the final amendments also include a new reporting item to include the definition(s) of terms used
in the fund’s name. Funds will have to report this information for the third month of every
quarter, instead of for each month as proposed.
•

Recordkeeping. Consistent with the proposal (but with conforming changes to

address the final rules’ approach to temporary departures from the 80% investment requirement),
the final rules include recordkeeping provisions related to a fund’s compliance with the rule’s
requirements. The final rules do not, however, include the proposed requirement for funds that
do not adopt an 80% investment policy to maintain a record of their analysis that such a policy is
not required.
2.

Other Aspects of the Proposal

We are not taking action on the proposed approach regarding the use of ESG terms in the
names of ESG “integration funds” at this time. Under the proposed approach, the names of ESG
“integration funds” would have been defined as materially deceptive and misleading if the name
includes terms indicating that the fund’s investment decisions incorporate one or more ESG

20

factors. 50 Under the proposal, integration funds were described as funds that consider one or
more ESG factors alongside other, non-ESG factors in the fund’s investment decisions, but those
ESG factors are generally no more significant than other factors in the investment selection
process, such that ESG factors may not be determinative in deciding to include or exclude any
particular investment in the portfolio. Such funds may select investments because those
investments would meet other criteria applied by the fund’s adviser (e.g., investments selected on
the basis of macroeconomic trends or company-specific factors like price-to-earnings ratio). This
description of integration funds in the names rule proposal mirrored the definition of an
integration fund in the Commission’s ESG Disclosure Proposal. 51
The proposed approach to integration funds in the names rule was designed to target
misleading fund names by making clear that it would be materially misleading for a fund for
which ESG factors are generally no more significant than other factors in the investment
selection process to include ESG terminology in its name. The proposed approach would have
addressed the Commission’s concern that such funds have the potential to overstate the
importance of ESG factors in the fund’s investment selection process. 52
Commenters offered mixed feedback on the names rule’s proposed approach to
integration fund names. Some commenters that supported the proposed approach stated that it
would help prevent investors from believing that ESG factors play a more significant role than

50

Proposed rule 35d-1(d).

51

See Enhanced Disclosures by Certain Investment Advisers and Investment Companies about
Environmental, Social, and Governance Investment Practices, Investment Company Act Release No. 34594
(May 25, 2022) [87 FR 36654 (June 17, 2022)] (“ESG Disclosure Proposal”), at section II.A.1.

52

See Proposing Release, supra footnote 2, at section II.D.

21

they actually do in the investment process – i.e., protect investors from greenwashing. 53 Other
commenters, however, questioned the Commission’s proposed approach, stating that the
proposed approach could act as a disservice to investors because, for example, it could result in
investors believing that integration funds do not consider ESG factors when they actually do, or
that the proposed approach could hinder innovation. 54 Because the proposed provision in the
names rule mirrored the separate proposed definition of an integration fund in the ESG
Disclosure Proposal, we are continuing to consider comments and are not adopting the proposed
approach to integration fund names at this time. As discussed above, however, the final
amendments’ expanded scope of the 80% investment policy requirement includes fund names
with terms suggesting that the fund focuses in investments that have, or investments whose
issuers have, particular characteristics—including terms indicating that the fund’s investment
decisions incorporate one or more ESG factors. 55
II.

DISCUSSION
A.

80% Investment Policy Requirement
1.

Names Suggesting an Investment Focus

Consistent with the proposal, we are adopting amendments that broaden the scope of the
names rule’s 80% investment policy requirement to apply also to fund names that include terms

53

See, e.g., Comment Letter of Ceres (Aug. 16, 2022) (“Ceres Comment Letter”); Consumer Federation of
America Comment Letter; Comment Letter of Evergreen Action (Aug. 15, 2022) (“Evergreen Action
Comment Letter”).

54

See, e.g., Cato Institute Comment Letter; Comment Letter of Mutual Fund Directors Forum (Aug. 16,
2022) (“MFDF Comment Letter”) (suggesting that the marketplace has been dynamic in developing
different approaches to bringing an ESG lens to various investment strategies, and that the proposed rule, as
the commenter understood it to largely limit the use of ESG terms in fund names to funds that use
inclusionary or exclusionary screens (as well as to funds that employ impact or proxy-voting strategies),
risks hindering further innovation in the fund space as ESG strategies continue to evolve); Comment Letter
of Minerva Analytics (Aug. 16, 2022) (“Minerva Comment Letter”).

55

See supra section I.C.1; see also final rule 35d-1(a)(2).

22

suggesting that the fund focuses in investments that have, or whose issuers have, particular
characteristics. 56 These amendments will apply in addition to the existing 80% investment policy
requirement for funds whose name suggests a focus in a particular type of investment, industry,
country, or geographic region, or those whose name suggests certain tax treatment. The purpose
of the names rule is to prevent fund names from misrepresenting the fund’s investments and
risks. 57 The expanded scope of the final amendments furthers this objective by ensuring that a
fund’s investment activity is consistent with the investment focus its name communicates.
a)

General Discussion

The Commission proposed to expand the 80% investment policy requirement to apply to
fund names that include terms suggesting that the fund focuses in investments that have, or
whose issuers have, particular characteristics, whether or not such terms connote an investment
strategy. In response to the proposal, commenters expressed that the names rule, as currently
constituted, fails to capture a large segment of funds because the rule makes a distinction
between terms that reference a type of investment and an investment strategy. 58 These
commenters supported the proposed scope expansion, asserting that terms in fund names that
reference an investment strategy often communicate to investors an investment focus, thus
creating a reasonable expectation among investors that the fund will hold investments that

56

As used in this release, consistent with rule 35d-1(a)(2), “investment focus” means a focus in a particular
type of investment or investments, a particular industry or group of industries, particular countries or
geographic regions, or investments that have, or whose issuers have, particular characteristics.

57

See Proposing Release, supra footnote 2, at n.5 and accompanying text.

58

See, e.g., Consumer Federation of America Comment Letter; Center for American Progress Comment
Letter; NASAA Comment Letter; see also Proposing Release, supra footnote 2, at n.23 and accompanying
text (discussing that the Commission has historically taken the position that fund names that incorporate
terms that connote an investment objective, strategy, or policy are not within the scope of the 80%
investment policy requirement).

23

support that focus. 59 These commenters suggested that expanding the scope of the rule to include
any term in a fund’s name that communicates an investment focus, whether or not that term
references an investment strategy, is necessary to modernize the rule and is a logical step to help
ensure that investment companies cannot circumvent the intent of the rule when naming funds. 60
Some commenters also asserted that the proposed expansion of the scope would bring more
“discipline and clarity” to fund naming practices and, in turn, help investors make more informed
investment decisions. 61 In particular, many commenters asserted that the expanded scope would
improve the ability of investors to discern between funds in the ESG investment industry and
better protect investors looking for exposure to ESG investments. 62 In addition, one commenter
suggested that the Commission provide more clarity on whether the expanded scope would cover
names suggesting a focus on “thematic” areas.” 63
In contrast, many commenters objected to the proposal because, in their view, the
expansion of the 80% investment policy requirement would lead to interpretive challenges and

59

See, e.g., NASAA Comment Letter; Comment Letter of Principles for Responsible Investment (Aug. 16,
2022); (“PRI Comment Letter”); Comment Letter of Soundboard Governance (Aug. 16, 2022)
(“Soundboard Governance Comment Letter”) (focusing particularly on the inclusion of ESG-related terms
in the proposed scope expansion).

60

See, e.g., Consumer Federation of America Comment Letter; Center for American Progress Comment
Letter.

61

See NASAA Comment Letter; Better Markets Comment Letter; Consumer Federation of America
Comment Letter.

62

See, e.g., Comment Letter of Sierra Club (Aug. 16, 2022) (“Sierra Club Comment Letter”); Better Markets
Comment Letter; Evergreen Action Comment Letter.

63

See NASAA Comment Letter (expressing that funds with names that suggest a focus on “trendy” thematic
areas in particular should be required to adopt an 80% investment policy and stating that investors, funds,
and regulators would “be well served by greater clarity” on whether the proposed expansion would
thematic fund names); see also Comment Letter of Seward & Kissel LLP (Aug. 16, 2022) (“Seward &
Kissel Comment Letter”) (stating that that the tension between words suggesting a “type of investment”
versus those suggesting an “investment strategy” has resulted in the [names rule] being inconsistently
applied, especially with respect to funds using thematic strategies.”).

24

added compliance costs for fund advisers without providing commensurate benefit to investors. 64
In particular, they stated that the expanded scope incorporates a vague standard that is more
subjective than the current scope of the names rule which, in contrast with the proposal, they
believed applies a more objective and intuitive framework that sufficiently ensures that fund
assets are invested in accordance with reasonable expectations based on a fund’s name. 65 They
questioned whether the names included in the expanded scope effectively communicate any real
investment focus to investors, absent further information about a fund’s objectives. 66 Because
these names are vague, they asserted, investors would still need to review a fund’s disclosures to
understand how the investment strategy is executed for these newly included terms, limiting the
value of the rule. 67 These commenters contended that the proposed expansion of the 80%
investment policy requirement has limited investor protection benefits because it overemphasizes
the importance of a fund’s name, and thus disincentivizes investors from looking beyond the
name to review information in fund prospectuses and related disclosures. 68 In addition, several
commenters questioned whether the Commission adequately articulated how terms that would be

64

See, e.g., Comment Letter of Stradley Ronon (Aug. 16, 2022) (“Stradley Comment Letter”); SIFMA AMG
Comment Letter; TIAA-Nuveen Comment Letter; Comment Letter of Calamos Investments (Aug. 16,
2022) (“Calamos Comment Letter”).

65

See, e.g., Calamos Comment Letter; Invesco Comment Letter; Comment Letter of Federated Hermes, Inc.
(Aug. 16, 2022) (“Federated Hermes Comment Letter”); MFS Comment Letter; Comment Letter of
Nationwide Funds Group (Aug. 16, 2022) (“Nationwide Comment Letter”); Robertson-Fisch Comment
Letter (discussing these points in the context of ESG funds); T. Rowe Comment Letter; see also PRI
Comment Letter (supporting the proposed scope expansion, but requesting that the Commission provide a
definition of “characteristics” in the proposed language expanding the scope).

66

See, e.g., MFS Comment Letter; ICI Comment Letter; Capital Group Comment Letter; Cato Institute
Comment Letter.

67

See SIFMA AMG Comment Letter; ICI Comment Letter (comparing the uniformity of an 80% investment
policy for funds with “equity” in their name to the potential inconsistency in 80% investment policies for
funds with “growth” in their name).

68

See, e.g., MFS Comment Letter; Capital Group Comment Letter; Cato Institute Comment Letter.

25

included in the proposed scope have led to investor confusion, deception, or harm such that they
should be subject to the rule. 69
Commenters also suggested that this vagueness would result in the costs of
implementation of the proposed amendments being high relative to what they stated would be
minimal value to investors. Commenters stated that interpretive issues relating to the proposed
scope’s vagueness would result in a number of adverse consequences, including inconsistent
application of the 80% investment policy requirement, uncertainty in determining whether a term
suggests a particular investment focus, and, where a fund has adopted an 80% investment policy,
whether a particular investment is consistent with that policy. 70 Commenters also suggested that
it would be challenging to establish automated compliance monitoring solutions for terms in
fund names where subjective criteria are part of the decision-making process. 71 As a result,
commenters expressed that funds would need either to require portfolio managers to adhere to
specific rigid criteria, stifling innovative investment strategies, or to engage in some level of
manual review, significantly increasing the complexity and compliance burdens for funds. 72

69

See, e.g., Comment Letter of WisdomTree Asset Management (Aug. 16, 2022) (“WisdomTree Comment
Letter”); SIFMA AMG Comment Letter; Invesco Comment Letter; Dechert Comment Letter. Commenters
also pointed to the lack of enforcement cases charging rule 35d-1 or shareholder suits in this area as a
reason to not expand the scope. See, e.g., Nationwide Comment Letter; Capital Group Comment Letter; ICI
Comment Letter IV.

70

See, e.g., ICI Comment Letter; SIFMA AMG Comment Letter; Invesco Comment Letter; Dechert
Comment Letter; Comment Letter of Fidelity Management & Research Company LLC (Aug. 16, 2022)
(“Fidelity Comment Letter”); Ceres Comment Letter.

71

See, e.g., ICI Comment Letter; T. Rowe Comment Letter; SIFMA AMG Comment Letter; Invesco
Comment Letter. Scalable and automatic compliance monitoring systems typically rely on third-party data
providers to tag investments but such providers could vary their classification of investments and may not
use the same classification as the fund. See, e.g., Comment Letter of Freeman Capital Management (July
24, 2022) (“Freeman Capital Management Comment Letter”); Invesco Comment Letter; T. Rowe
Comment Letter.

72

See, e.g., Dechert Comment Letter; Invesco Comment Letter; TIAA-Nuveen Comment Letter; J.P. Morgan
Asset Management Comment Letter; T. Rowe Comment Letter; Wellington Comment Letter; ICI
Comment Letter; Invesco Comment Letter; Freeman Capital Management Comment Letter.

26

Commenters also raised concerns that, for funds that would be within the scope of the 80%
investment policy requirement, a portfolio manager’s expectations with respect to investments
that would qualify for inclusion in the 80% basket may ultimately prove wrong or change over
time, which could make compliance with the names rule challenging. 73 Relatedly, commenters
expressed the concern that the expanded scope could lead to retroactive second-guessing of
portfolio managers’ designations of investments by Commission staff. 74 To avoid these
implementation problems, commenters suggested funds may use broader, more generic names
that convey less information to investors in order to avoid adopting an 80% investment policy. 75
Many commenters expressed particular concern with the inclusion of the terms “growth”
and “value” in the proposed scope. 76 Commenters asserted that there are no precise definitions or
standardized criteria used to classify these types of investments. 77 Rather, commenters expressed
that portfolio managers have unique qualitative and quantitative criteria that they evaluate when
selecting growth or value investments, some of which rely on more subjective determinations
that may vary among portfolio managers. 78 A few commenters suggested that investors invest in
certain growth or value funds because they believe in a manager’s unique analysis and

73

See, e.g., SIFMA AMG Comment Letter; Fidelity Comment Letter; J.P. Morgan Asset Management
Comment Letter; Stradley Comment Letter (stating that “‘equity’ and ‘fixed income’ investments do not
change their categorization due to market declines, cycles or volatility, as compared to a value stock, that, if
subjected to only objective criteria, can and does migrate from one category to another”).

74

See, e.g., ICI Comment Letter; Federated Hermes Comment Letter; J.P. Morgan Asset Management
Comment Letter.

75

See, e.g., Dechert Comment Letter; ICI Comment Letter (asserting that the proposed amendments could
also incentivize longer, more complex fund names that seek to capture the full range of investments
reflected in a fund’s investment strategy).

76

See, e.g., ICI Comment Letter; Dechert Comment Letter; T. Rowe Comment Letter.

77

See, e.g., Fidelity Comment Letter; Nationwide Comment Letter; Stradley Comment Letter.

78

See, e.g., Wellington Comment Letter; MFS Comment Letter; ICI Comment Letter.

27

conclusions for selecting investments. 79 Some commenters expressed that requiring growth or
value funds to define terms in their name and disclose the criteria used to select investments
would lead to more rigidity in investment selection, resulting in less flexibility for managers to
implement investment strategies that traditionally have been managed with more nuance. 80
To avoid these interpretative challenges and compliance burdens, a number of
commenters suggested narrowing the scope of the final rule to that of the current rule or to
exclude terms that do not readily reduce to measurable characteristics, and for which evaluations,
opinions, and views reasonably may vary. 81 Separately, some commenters urged the
Commission to require enhanced disclosure in a fund’s registration statement when its name
indicates an investment strategy, rather than expanding the scope to mandate an 80% investment
policy for these funds. 82 Several commenters expressed that investor access to disclosures and
information about funds is widespread and easily accessible, making an investor’s need to rely
on a fund name to evaluate the fund’s strategy less necessary than when the Commission adopted
the names rule. 83

79

See Stradley Comment Letter; SIFMA AMG Comment Letter.

80

See, e.g., Wellington Comment Letter; Nationwide Comment Letter; Stradley Comment Letter.

81

See, e.g., ICI Comment Letter; Invesco Comment Letter; Federated Hermes Comment Letter; Dechert
Comment Letter; TIAA-Nuveen Comment Letter; see also Calamos Comment Letter (asserting that, if the
expanded scope is adopted, the Commission should consider excluding existing funds from the rule’s
requirements because compliance may be costly and have unanticipated effects for existing funds that are
not currently subject to the rule).

82

SIFMA AMG Comment Letter; Invesco Comment Letter; Comment Letter of Calvert Research and
Management (Aug. 16, 2022) (“Calvert Comment Letter”); CFA Institute Comment Letter (recommending
that when a fund’s name suggests an investment focus, the investment focus must be consistent with the
key factors in the principal investment strategies that are disclosed in the fund’s registration statement). See
also ICI Comment Letter IV (asserting that the proposed amendments are unnecessary because existing
prospectus disclosure requirements and other regulatory obligations, such as rules 482 and 156 under the
Securities Act of 1933 and FINRA Rule 2210, provide a sufficient framework to ensure that fund
communications are clear and not misleading).

83

See SIFMA AMG Comment Letter; Dechert Comment Letter; T. Rowe Comment Letter.

28

After considering comments, we are adopting, substantially as proposed, amendments
that expand the rule’s 80% investment policy requirement to apply to any fund with terms in its
name that suggest that the fund focuses in investments that have, or investments whose issuers
have, particular characteristics. We recognize that some commenters expressed concerns about
perceived vagueness associated with the “particular characteristics” language in the proposed
rule. 84 The amended rule provides, as proposed, an illustrative parenthetical that is designed to
give non-exclusive examples of terms that suggest that the fund focuses in investments that have,
or whose issuers have, particular characteristics. The parenthetical provides as examples the
terms “growth” or “value,” or terms indicating that the fund’s investment decisions incorporate
one or more ESG factors. 85 We are not defining the term “particular characteristics” in the rule,
as suggested by a commenter, because we believe that this term will be adequately understood to
mean any feature, quality, or attribute. 86 We are adopting this approach, rather than an approach
that provides an enumerated list of terms included in the expanded scope, in light of the broad
diversity of fund investment strategies and fund names, and to ensure that the rule remains
evergreen. Based on our understanding of the fund industry and current practice, however, we
anticipate that the primary types of names that the expanded scope will cover will be names that
include the terms “growth” and “value,” terms with ESG- or sustainability-related
characteristics, or terms that reference a thematic investment focus.
We recognize that many commenters opposed expanding the scope of the rule, and the
inclusion of terms such as “growth” and “value” in particular. While we appreciate these

84

See, e.g., Stradley Comment Letter; TIAA-Nuveen Comment Letter; Cato Institute Comment Letter.

85

See infra sections II.A.1.d) and II.D.

86

See supra footnote 65.

29

commenters’ concerns, it is important to balance these concerns with the investor protection
goals that underlie the names rule and section 35(d) of the Investment Company Act. Although
there have been limited Commission enforcement cases citing section 35(d) of the Act,
Commission and staff’s experience with the names rule over the past two decades and
developments in the fund industry during this time period, including the increase in fund assets
under management and the proliferation of diverse fund strategies, lead us to modernize and
enhance the names rule to further the investor protection goals of section 35(d). 87
We are adopting amendments that do not distinguish between a type of investment and an
investment strategy because a fund name might connote a particular investment focus and result
in reasonable investor expectations regardless of whether the fund’s name describes a strategy as
opposed to a type of investment. We understand that funds typically include certain terms in their
name to communicate an investment focus and to appeal to investors choosing among available
investment options. 88 As some commenters believed, the names included in the expanded scope
can serve as the initial bases upon which investors make investment decisions and create
reasonable expectations that funds that use those terms will focus on investments and issuers that
have the specified characteristics that a fund’s name suggests. 89 For example, terms like
“growth” and “value” create reasonable expectations among investors that funds with those

87

See infra at footnote 494 and accompanying text (asserting that the lack of Commission enforcement
actions citing section 35(d) of the Act is evidence that the general framework of the rule is effective, not
that further enhancements to the rule are unnecessary).

88

For example, funds have increasingly chosen names that include terms that reference popular industry
themes, business sectors, or investment strategies. See supra footnote 33 and accompanying text
(discussing the increase in filings over the last few years by funds with names that reference popular
industry themes and business sectors, providing some evidence that investors are attracted to these fund
names). See also supra footnote 36 (suggesting that ESG terminology in fund names is effective in
attracting inflows).

89

See NASAA Comment Letter; Consumer Federation of America Comment Letter; PIABA Comment
Letter.

30

terms in their name will invest predominantly in companies that exhibit “growth” or “value”
characteristics. By expanding the scope of the 80% investment requirement to include these
names, the final amendments will help ensure that these types of funds have portfolios that
reflect the investment focus their name suggests. Further, the expanded scope in the final
amendments will reduce the existing inconsistencies in the application of the rule by eliminating
the need for fund managers to determine whether their name references a type of investment or
an investment strategy.
The Commission staff has observed an increase in filings by funds that use “thematic”
terms in their name. 90 We understand that fund managers and others would consider certain of
these thematic names to be included in the current scope of the names rule. For instance, certain
terms may be viewed as clearly suggesting a focus in a type of industry or group of industries
(e.g., terms suggesting a focus in cybersecurity, health and wellness, or travel and tourism). 91
There could be reasonable questions, however, about whether other thematic terms suggest a
focus in a particular type of investment, or in investments in a particular industry or group of
industries. This could occur, for example, because a thematic term may be narrower or more
expansive than an “industry” may be commonly understood (e.g., drones, “smart cities,”
metaverse, “big data”). And there are certain thematic terms that we believe most practitioners
would not consider to suggest a focus in a type of investment, or a focus in a particular industry
or group of industries (e.g., terms suggesting demographic characteristics such as “millennial” or

90

See supra footnote 33 and accompanying text.

91

In cases where certain terms that suggest a focus in a type of industry have been coupled with the word
“strategy,” some funds have argued that the name suggests a focus in an investment strategy and not a type
of investment, and therefore should not be within the scope of the 80% investment policy requirement. As
discussed above, the expansion of the scope of the 80% investment policy requirement includes terms
suggesting that the fund focuses in investments that have, or whose issuers have, particular characteristics,
whether or not such terms connote an investment strategy.

31

“Gen Z,” or political, economic, or historical themes such as “biothreat,” “gig economy,” “meme
stocks,” or “post-Corona”). The effect of the scope of the final amendments is that, to the extent
a fund uses a term in its name that suggests an investment focus, including any term that
references a thematic investment focus, the fund will be required to adopt an 80% investment
policy, which in turn will help ensure it will invest in accordance with the investment focus its
name suggests.
We understand that certain terms used in fund names may have more objective or
standardized criteria than other terms. For instance the term “equity” generally has a more
standardized definition, whether based on plain English principles or established industry use,
compared to terms like “growth” and “value.” However, not all names that fall within the scope
of the current rule have precise definitions or standardized, objective criteria. For instance, for
fund names that reference a particular region or country, it is often not immediately apparent
based on the terms in a fund’s name whether the fund invests in issuers that are domiciled in the
specific region, have a large presence in the region, or have some other nexus to the region. An
investor may generally understand what constitutes “Latin America,” and seek out a “Latin
American” fund, but different portfolio managers may apply different definitions of what
specifically “Latin America” means in practice for their fund because definitions of “Latin
America,” using plain English or industry use of the term, can reasonably differ.
This variation is evident based on the principal investment strategies disclosed in fund
prospectuses. For example, a “Latin America” fund offered by one adviser has an 80%
investment policy to invest in securities of issuers that derive at least 50% of revenue from Latin
American markets (defined to include Spanish-speaking islands in the Caribbean), without
consideration of the issuers’ domicile, headquarters, or primary trading market. In contrast,

32

another “Latin America” fund managed by a different adviser has a policy to invest at least 80%
in securities of issuers that are domiciled in Latin America (defined to exclude Mexico and
Caribbean islands), that derive significant revenues from Latin America, or the securities trade
on exchanges located in Latin America. Each of these examples is consistent with the plain
English or industry use of the term and demonstrates the flexibility the final amendments will
provide to fund managers in developing definitions of the terms used in a fund’s name.
Moreover, given the proliferation of the diversity of fund investment strategies and fund names
since the rule was originally adopted, retaining the current rule’s scope or excluding terms that
do not always neatly reduce to measurable characteristics, as suggested by commenters, would
undermine the investor protection purposes of the rule.
The final rule also is not as rigid as many commenters seem to contend when, for
example, they suggested that a rule that requires pre-determined definitions of certain terms
could lead to retroactive second-guessing by Commission staff and result in funds adopting more
generic names or could create incentives for longer, more complex names. The amended rule
provides fund managers with flexibility to ascribe reasonable definitions for the terms used in a
fund’s name and flexibility to determine the specific criteria the fund uses to select the
investments that the term describes. 92 We understand that different funds and various third-party
data providers may use different definitions for the same term in order to best reflect a particular
investment strategy. The amended rule is designed for funds to retain reasonable discretion in
establishing their 80% investment policies, which allows funds to implement nuanced and

92

See infra section II.C. This flexibility also means a fund would not be required to include proprietary
information in its 80% investment policy. See Stradley Comment Letter (asserting that providing
meaningful distinctions among funds may require over-disclosing the criteria used to select investments,
which investment advisers may be hesitant to provide to avoid giving away proprietary information).

33

innovative investment strategies. 93 We also appreciate, for many terms, there will be various
reasonable means of implementing an 80% investment policy that incorporates a definition or
understanding of terminology that differs from another fund whose name incorporates the same
terminology. For example, different funds may have “growth” in their name, and each of these
funds may have portfolio managers who have different approaches to selecting investments that
have growth characteristics. In such circumstances, two funds would naturally have different
policies that reflect their portfolio managers’ distinct approaches to growth investing. In this
example, each of these funds would describe to investors how it defines “growth,” provided the
definitions are consistent with the term’s plain English meaning or established industry use, and
then invest 80% of their investments in accordance with their description. 94
In addition, we understand that the expansion of the rule’s scope will involve operational
costs for many funds, particularly those that are not currently subject to the rule. 95 In a
modification from the proposal, however, the amended rule will no longer require a fund to reassess its portfolio investments continuously to determine compliance with its 80% investment
policy, but will instead require reassessment of each portfolio investment on an at-least quarterly
basis. 96 This modification will address concerns commenters raised related to cost burdens

93

As a result of this flexibility, we disagree with commenters that asserted that the expanded scope would
effectively penalize funds that invest in a security that initially displays particular characteristics but where
those characteristics evolve over time. See supra footnote 73. However, to the extent that a fund identifies
as part of the final rule’s quarterly review requirement that the characteristics of an existing investment in
the fund’s portfolio are inconsistent with the fund’s 80% investment policy as a result of, for example,
market declines, cycles, or volatility, the fund must address this in accordance with the rule’s requirements
for temporary departures from the 80% investment requirement. See infra footnote 185 and accompanying
paragraph; see also section II.E.1.

94

See also infra paragraph accompanying footnotes 153-154; infra paragraph accompanying footnotes 357358.

95

See infra sections IV and V.

96

See infra section II.A.2.

34

associated with the proposed scope expansion, to the extent that those concerns largely related to
the costs of continuous monitoring and assessment of a fund’s 80% investment policy. 97
Moreover, considering that not all terms that fall within the scope of the current rule have
standardized and objective definitions (e.g., “Latin America” funds as discussed above), existing
compliance monitoring for these funds likely necessitates some form of manual review to ensure
that investments are consistent with the manner in which the fund defines a given term. The
assessment that funds would have to undertake to ensure that portfolio investments are consistent
with their 80% investment policies under the final rules would entail this same aspect of current
fund practices. 98
The final amendments’ approach, which combines an expanded 80% investment policy
requirement with additional disclosure and reporting requirements, reflects that certain terms
used in a fund’s name can simultaneously communicate an investment focus while also
reflecting nuance that should be further discerned after reviewing the fund’s prospectus
disclosure. 99 The Commission has historically encouraged investors to look beyond a fund’s
name and to review a fund’s underlying disclosures to gather information about the fund’s
investment activity and objectives, and we continue to encourage this. 100 We understand that
such disclosures are easily accessible for most investors and that the current regulatory
framework is designed to help ensure that fund disclosures, marketing materials, and other
communications are clear, informative, and not misleading. We agree, however, with

97

See infra section IV.D.2.

98

See infra section II.A.2.a) (discussing compliance monitoring and portfolio investment assessment and reassessment requirements under the final amendments and how these requirements compare to current
names rule requirements).

99

See infra sections II.B and II.E.

100

See supra footnote 9.

35

commenters who stated that, despite this accessibility, fund names can play a critical role in
investment decisions. Congress provided the Commission with rulemaking authority to address
materially deceptive or misleading fund names, recognizing the concern that investors may focus
on a fund’s name and what it communicates about the fund’s investments and risks despite the
information included in fund prospectuses and related disclosures. 101 Accordingly, the final
amendments require funds that use terms that communicate an investment focus to adopt an 80%
investment policy, in furtherance of the investor protection objectives of the names rule, to
provide greater assurance that a fund’s investments will be consistent with its name.
Separately, a few commenters questioned the Commission’s authority to adopt the
proposed amendments under section 35(d) of the Investment Company Act. 102 For instance, one
commenter asserted that the Commission lacks authority to adopt the amendments, as “[t]here is
a significant difference between a name based on investors’ reasonable expectations and a name
that is materially deceptive or misleading.” 103 Another commenter suggested that neither the
current rule nor the proposed amendments are consistent with the authority that section 35(d)
grants, as neither incorporates a finding by the Commission that a particular and identified word
or words are materially deceptive or misleading. 104 Lastly, one commenter asserted that the
proposed amendments would have associated costs and burdens, and suggested that Congress did

101

See supra footnote 7.

102

See, e.g., ICI Comment Letter; Stradley Comment Letter; Seward & Kissel Comment Letter.

103

ICI Comment Letter I; see also ICI Comment Letter IV (asserting that “the Commission lacks authority to
adopt the [proposed amendments] under [section 35(d)]” because the proposed amendments are “too vague
and ambiguous,” and do not satisfy the “materiality” requirement in section 35(d)).

104

Seward & Kissel Comment Letter (stating that “[w]e think the appropriate reading of Section 35(d) is
that . . . funds subject to the prohibitions of the statute (and any regulations adopted thereunder) could
provide, through the notice and comment process, comments on the specific “word or words” proposed by
the Commission to be deemed materially deceptive or misleading”).

36

not intend for section 35(d) to authorize the Commission to impose significant burdens that
would have a material economic impact on funds and their investors. 105
We disagree with the views expressed by these commenters. Congress, in enacting
amended section 35(d) of the Act, reaffirmed its concern that investors may focus on a fund’s
name to determine the fund’s investments and risks, and recognized that investor protection
would be improved by giving the Commission rulemaking authority to define materially
deceptive or misleading fund names. 106 Before this amendment, the Commission was required to
“declare by order that a particular name was misleading and, if necessary, obtain a federal court
order prohibiting further use of the name.” 107 In light of this “cumbersome process,” 108 Congress
gave the Commission the power to act by “rule, regulation, or order.” 109 Congress further gave
the Commission the authority to “define such names or titles as are materially deceptive or
misleading,” not “list” or another similar word, and whether any “word or words” are materially
deceptive or misleading is a determination that necessarily is made with reference to additional
facts and circumstances. 110
Relying on this authority, the Commission in 2001 adopted the names rule to “address
certain investment company names that are likely to mislead an investor about a company’s
investment emphasis,” which would “guard against the use of misleading investment company

105

SIFMA AMG Comment Letter; see also Calamos Comment Letter.

106

2001 Names Rule Adopting Release, supra footnote 8, at section I.

107

See id. at text proceeding footnote 3.

108

S. Rep. No. 293, 104th Cong., 2d Sess. 8-9 (1996) (“Enforcing the Act entails a cumbersome process—the
Commission must first find, and declare by order, that a fund’s name is deceptive or misleading, and then
bring an action in federal court to enjoin the use of the name”).

109

15 U.S.C. 80a-34(d).

110

Id. (emphasis added); see also 80a-34(a) & (b) (making it unlawful for certain persons to “represent or
imply” that a security is guaranteed or approved by the U.S. government or a bank, but not listing every
specific statement that would do so).

37

names,” “provide an investor greater assurance that the company’s investments will be consistent
with its name,” and “reduce confusion.” 111 Similarly here, the Commission in adopting rule
amendments is exercising its authority under section 35(d) to “define,” “by rule,” “such names or
titles as are materially deceptive or misleading” and is doing so based on consideration of the
broad public input the Commission has received on fund names, our analysis of this input, the
Commission and staff’s experience with the names rule over the past two decades, and
developments in the fund industry during this time period. 112 In the years since the Commission
has adopted the names rule, it has observed certain general trends—specifically as discussed
above, a significant broadening of fund investment options currently available, the growth of
fund assets in sector funds and thematic strategies, and a growth in investor interest in funds with
ESG strategies—that have caused us to believe that targeted action in this area is necessary. 113
Although we acknowledge that the final amendments may impose additional costs and
burdens relative to the current rule, we have made changes to the proposed amendments that
have the result of mitigating the burdens associated with the final amendments compared to the
proposal. The costs and burdens associated with the final amendments are carefully considered
by the Commission, and such costs and burdens are justified given the investor protection
objectives that underlie section 35(d) and that would be achieved through the amendments.
Further, another commenter asserted that application of the proposed amendments to
terms that suggest investments with particular characteristics would violate the First

111

See id.

112

See supra section I.B; see also, e.g., Environmental Defense Fund Comment Letter; Comment Letter of
Sierra Club (Aug. 16, 2022) (“Sierra Club Comment Letter”); Ceres Comment Letter (all discussing the
proposed amendments as within the Commission’s authority to define materially deceptive and misleading
names under section 35(d) of the Act).

113

See supra footnote 33 and accompanying text.

38

Amendment, as this “operates as a restriction on funds’ ability to speak through their names.” 114
We disagree that this aspect of the amendments violates the First Amendment. As we have
explained elsewhere in this release, as Congress recognized by adopting section 35(d), fund
names can provide important information to investors regarding the nature of the fund and
therefore the nature of their potential investment. And names that do not necessarily fall under
the existing rule can create reasonable investor expectations by suggesting a particular
investment focus. The amendments adopted today will help align fund names and investor
expectations by applying the 80% requirement to all names that suggest a particular investment
focus, reducing the extent to which funds can choose names that are materially misleading or
deceptive. Rather than barring the use of any particular name, the amendment imposes certain
requirements when the name a fund has selected communicates specific and important
information about the fund. Further, the amendments allow funds the flexibility to ascribe
reasonable definitions for the terms used in their names. 115 The amendments are therefore
appropriately tailored to serve Congress’s significant interest in preventing investors from being
deceived or misled. 116
b)

Names That Do Not Suggest an Investment Focus

The 2022 Proposal acknowledged that there would continue to be fund names that would
not require the fund to adopt an 80% investment policy because the names would not connote an

114

ICI Comment Letter IV.

115

See supra footnote 92 and accompanying text.

116

For similar reasons, we disagree with the commenter who asserted that certain proposed reporting
requirements on Form N-PORT violate the First Amendment. ICI Comment Letter IV. These requirements
do not require reporting of “subjective information on which investment managers may appropriately
disagree,” (id.) but instead provide important information to investors regarding whether and how a fund’s
investments align with reasonable expectations created by the fund’s name and 80% investment policy.

39

investment focus. 117 In particular, the Commission stated that terms in a fund’s name that
reference characteristics of the fund’s portfolio as a whole, such as a name indicating the fund
seeks to achieve a certain portfolio “duration” or that the fund is “balanced,” would not require
the fund to adopt an 80% investment policy. 118 The Commission stated that in such cases a term
may indicate a fund’s objectives without communicating to investors the specific type of
investments, or the particular characteristics of investments, that the fund will acquire. 119
Commenters generally agreed that such terms would not require an 80% investment policy under
the proposal and that this treatment was appropriate. 120
Many commenters, however, sought additional clarity on terms – such as “growth” and
“value” – that commenters stated can reference either the characteristics of a fund’s investments
or the intended result of a fund’s portfolio investments in the aggregate. 121 One commenter
focused in particular on ESG “uplift” funds, where the fund begins with a given universe of
investments and does not add new investments to this universe but systematically over- or
underweights investments within the given universe based on ESG criteria, with the objective of
achieving a more favorable ESG profile at an aggregate fund level as compared to the

117

See Proposing Release, supra footnote 2, at n.49 and accompanying text.

118

Id.

119

Regardless of whether a fund is required to adopt an 80% investment policy under the rule, a fund must,
consistent with rule 38a-1, adopt and implement written policies and procedures reasonably designed to
prevent violations of the Federal securities laws, which includes section 35(d). Id. at n.50 and
accompanying text.

120

See, e.g., J.P. Morgan Asset Management Comment Letter; Fidelity Comment Letter; ICI Comment Letter;
SIFMA AMG Comment Letter.

121

See, e.g., TIAA-Nuveen Comment Letter; Calamos Comment Letter; T. Rowe Comment Letter;
WisdomTree Comment Letter; ICI Comment Letter (stating that “[t]erms that could refer to either a
particular investment or the portfolio as a whole are per se not misleading or deceptive because they do not
create an affirmative impression in one way or another”).

40

benchmark or investment universe, within a specific tracking error target. 122 The fund is
investing on a relative basis at the portfolio level, rather than focusing its investment in
companies that objectively exhibit strong ESG characteristics, and includes terms in the fund’s
name intended to communicate this investment approach to investors (such as ESG “Aware”).
Commenters also expressed concern with the proposal’s discussion of maturity-related terms that
describe certain bond funds’ holdings. 123 These commenters agreed with the Commission that
the term duration should not require an 80% investment policy because it refers to a portfoliowide analysis; however, they further asserted that terms like “intermediate-term (or similar)
bond” are likewise used by funds and understood by investors similarly to refer to the portfolio’s
duration (i.e., the portfolio’s sensitivity to interest rate changes). Commenters also suggested that
terms like “global” and “international” should continue to be outside of the scope of the 80%
investment policy requirement because these terms reference the portfolio as a whole. 124
Conversely, several commenters urged that certain terms may not connote particular
characteristics of a fund’s portfolio investments, but nonetheless should require an 80%
investment policy when those terms clearly communicate that the fund is managed in a particular
way (e.g., terms like “balanced,” “hedged,” and “managed risk”). 125 Relatedly, one commenter

122

See Comment Letter of BlackRock, Inc. (Dec. 19, 2022) (“BlackRock Comment Letter”); see also
Robertson-Fisch Comment Letter (discussing ESG “tilt” strategies).

123

See ICI Comment Letter; SIFMA AMG Comment Letter; Invesco Comment Letter.

124

See, e.g., Dechert Comment Letter; ICI Comment Letter; Invesco Comment Letter; Seward & Kissel
Comment Letter.

125

See Dogwhistle Comment Letter; PIABA Comment Letter (also recommending that the rule prohibit the
use of terms of well-known organizations, affinity groups, or the reference to a specific population of
investors (e.g., “veterans” or “municipal employees”) in fund names). See also Consumer Federation of
America Comment Letter (additionally recommending that the rule should prevent single-state tax exempt
funds from investing substantially in securities issued by another municipality). The Commission did not
propose amendments that addressed the scope of tax-exempt funds whose names require them to adopt an
80% investment policy, or the investments that would be included in a fund’s 80% basket under such
policy, nor do the final amendments address these points. But see infra footnote 155.

41

suggested that the rule should explicitly subject funds with allocation designations in their name
(e.g., 60/40 Target Allocation Fund) to the 80% investment policy requirement. 126
After considering comments, we continue to recognize that there are certain terms that do
not communicate to investors the particular characteristics of investments that will make up the
fund’s portfolio and for which an 80% investment policy will not be required. Such names
include, for instance, names that suggest a portfolio-wide result to be achieved, such as “real
return,” “balanced,” or “managed risk,” names that reference a particular investment technique,
such as “long/short” or “hedged,” and names that reference asset allocation determinations that
evolve over time, such as a retirement target date or “sector rotation” funds.” 127 In each of these
examples, the fund’s name communicates information to investors about the overall
characteristics of the fund’s portfolio, rather than particular investments in the portfolio, and
therefore will not necessitate an 80% investment policy under the amended rule. Likewise, terms
like “intermediate term (or similar),” in describing a “bond” fund, also will not require an 80%
investment policy under the final amendments in addition to the 80% investment policy that
would be required due to the fund’s use of “bond” in its name in this example. We do not view
these types of names as being distinct from names that describe portfolio-wide characteristics,
such as names that describe portfolio duration. Additionally, names including the terms “global”
and “international,” without an additional term that suggests an investment focus such as “fixed
income” or “growth,” will not require an 80% investment policy under the final rule. These

126

See Better Markets Comment Letter.

127

A target date fund’s name communicates an investment approach to investors, but does not communicate
the composition of the fund’s portfolio at any particular point in time, as the fund’s investments will change
over time in accordance with the fund’s glide path. Similarly, “sector rotation” funds seek to shift their
portfolio in and out of sectors over time as the economy moves through the different phases of a business
cycle. In each of these cases, an 80% investment policy would not be appropriate for the fund because the
fund’s name connotes portfolio-wide asset allocation determinations that evolve continuously over time.

42

terms describe a fund’s approach to constructing a portfolio, but do not communicate the
composition of the fund’s portfolio with any particularity (unlike, say, “Japan” or “Europe”) and
therefore on their own suggest no particular investment focus. 128 Therefore, requiring such funds
to adopt an 80% investment policy would produce fewer investor protection benefits relative to
names that communicate to investors the particular characteristics of investments that will
compose the fund’s portfolio. Names with terms that do not communicate the particular
characteristics of investments composing the fund’s portfolio will continue to be subject to
section 35(d)’s prohibition on materially misleading or deceptive names. 129 Funds with these
names likewise will continue to be subject to the anti-fraud provisions of the Federal securities
laws regarding disclosures to investors.
In response to commenters seeking additional clarity about the terms growth and value,
we understand, based on staff review of fund disclosure, that it is not typical in current practice
for growth and value funds to implement their strategies on a portfolio-wide basis, as opposed to
a selection process based on the growth or value characteristics of the fund’s component
portfolio investments. If terms in a fund’s name can reasonably be understood to reference either
the characteristics of a fund’s individual investments or the intended result of a fund’s portfolio

128

Similarly, funds that use terms in their name that indicate that the fund uses a negative or exclusionary
screening process for investments (e.g., “fossil fuel-free”) may not require an 80% investment policy
because such terms generally provide insight into what is precluded from the fund’s portfolio, but these
terms do not communicate to investors the particular investment focus of the fund’s portfolio. In any case, a
fund with a name like “fossil fuel-free” that indicates the fund will not invest at all in fossil fuels in this
example will be materially deceptive or misleading for purposes of section 35(d) if the fund invests in
companies that are not fossil fuel-free as defined by the fund in its prospectus (e.g., issuers with fossil fuel
reserves).

129

For instance, terms used in fund names that reference well-known organizations, affinity groups, or that
reference a specific population of investors may not communicate the particular characteristics of
investments composing the fund’s portfolio and therefore may not require an 80% investment policy under
the amended rule. Such funds, however, will continue to be subject to section 35(d)’s prohibition on
materially misleading or deceptive names.

43

investments in the aggregate, the fund will be required to adopt an 80% investment policy,
consistent with the proposal. We disagree with the commenter who asserted that such terms are
per se not misleading. 130 It would be confusing to investors if the same term in a fund’s name
required an 80% investment policy in some cases and not in others. In addition, the rule provides
funds sufficient flexibility to design and implement an 80% investment policy in these
circumstances. We do not agree that the ESG uplift strategies identified by one commenter
require an 80% investment policy, however, because the particular strategies identified by the
commenter are solely executed on a relative basis at the portfolio level, as described in more
detail above, and include terms in the fund’s name associated with this investment strategy to
signal this different approach to investors. 131
c)

Investments Included in a Fund’s 80% Basket

Regarding the application of the proposed amendments, the Commission stated in the
2022 Proposal that when determining whether a particular asset is invested in accordance with
the investment focus that the fund’s name suggests (i.e., qualifies for inclusion in a fund’s 80%
basket), there must be a meaningful nexus between the given investment and the investment
focus suggested by the name. 132 The Commission discussed that a fund may define the terms
used in its name in a reasonable way, allowing for flexibility in determining whether a nexus
exists between a given security and the focus the fund’s name suggests. For instance, the
Commission stated it would be reasonable for a fund to determine a sufficient nexus between
certain securities and a given industry if the securities are issued by companies that derive more

130

ICI Comment Letter.

131

BlackRock Comment Letter.

132

See generally for this discussion Proposing Release, supra footnote 2, at nn.51-52 and accompanying text.

44

than 50% of their revenue or income from, or own significant assets in, the industry. However,
the Commission also explained that the use of text analytics to assign issuers to industries based
on the frequency of particular terms in an issuer’s disclosures was not, in and of itself, sufficient
to create a reasonable nexus.
Commenters expressed that a 50% revenue test is not always the most appropriate way to
determine whether a company is part of a given industry, particularly for new companies and
nascent industries and business sectors. 133 These commenters urged the Commission to clarify
the reasonableness standard as it applies to designating investments in a fund’s 80% basket,
urging that advisers need the flexibility to evaluate investments based on a totality of criteria
beyond revenue tests. Some commenters asserted that funds with certain business or industryadjacent investment strategies face particular difficulties adopting an 80% investment policy
because their investments often vary in terms of industries, capitalization ranges, revenue
sources, asset classes, geographies, and other key characteristics, making it challenging to
pinpoint confidently a reasonable nexus between the fund’s investments and the investment
focus suggested by its name. 134 Moreover, one commenter expressed particular concern with the
proposal’s discussion of the processing of text analytics, suggesting that the tool is a useful
method for facilitating forward-looking analysis of companies and industries. 135 Separately, two
commenters suggested that the Commission should permit fund managers to use forward-looking
assessments or future-based methodologies to analyze investments when determining whether
they fit in a given industry or sector, on the condition that such funds use a modifying indicator

133

See, e.g., SIFMA AMG Comment Letter; BlackRock Comment Letter; Seward & Kissel Comment Letter;
WisdomTree Comment Letter.

134

See, e.g., ICI Comment Letter; Dechert Comment Letter; Minerva Comment Letter.

135

SIFMA AMG Comment Letter.

45

like “emergent” or “future” in their names to signal to investors that their analysis of investments
is not completely based on current characteristics of the issuer. 136
We appreciate commenters’ concerns regarding potential challenges in determining
whether a particular asset is invested in accordance with the investment focus that the fund’s
name suggests, particularly with respect to thematic investment strategies. Consistent with the
2022 Proposal, the plain English and established industry use requirements in the final
amendments are intended to provide flexibility for funds to determine what qualifies as a
reasonable nexus between a security and a given investment focus. 137 Similar to the
Commission’s discussion in the Proposing Release regarding the application of the final
amendments, it would generally be reasonable for a fund to determine that a sufficient nexus
exists between certain securities and a given industry if the securities are issued by companies
that derive more than 50% of their revenue or income from, or own significant assets in, the
industry. There also may be instances where the percentage could be smaller, such as where a
large company is a dominant firm in a given industry (e.g., the firm is an acknowledged leader in
the industry). Further, the use of text analytics to assign issuers to industries based on the
frequency of particular terms in an issuer’s disclosures is not, in and of itself, sufficient to create
a reasonable nexus because it is not reasonable to conclude that an issuer is in a given industry
solely because the issuer’s disclosure documents frequently include words associated with the
industry. 138 These examples are not meant to serve as an exhaustive list of acceptable methods of

136

See SIFMA AMG Comment Letter; BlackRock Comment Letter.

137

See final rule 35d-1(a); see also infra section II.C.

138

The advent and growth of advanced technologies have made increasing use of natural language processing
that can significantly enhance the scale and scope of text analytics. Funds may be able to use these types of
technologies to aid a determination that a nexus exists between a given security and the focus that a fund’s

46

qualification in a fund’s 80% basket. Given the breadth of fund names and strategies, it is not
possible to provide an enumerated list of circumstances in which a nexus exists between a
security and an industry or a particular investment focus.
Further, as raised by commenters, advisers may offer funds with strategies that seek
exposure to long-term investment opportunities or that seek to identify issuers that are likely to
generate significant amounts of revenue from certain industries or business sectors in the future.
As commenters expressed, it may be challenging for these types of funds to find a reasonable
nexus between their investments and a given investment focus based on current characteristics of
the issuer. In these circumstances, funds may signal to investors, through the use of “emergent,”
“future,” or some other similar term in the fund’s name, that the fund considers some futurebased methodology when assessing whether a nexus exists between a given security and the
investment focus suggested by the fund’s name (e.g., “XYZ Emergent 3D Printing Technology
Fund”). More generally, we recognize that overall context is important in how an investor
interprets a fund’s name. For instance, descriptive terms such as “aggressive,” “conservative,” or
“strategic,” when paired with another term that is covered by the scope of the rule can modify an
investor’s expectations with respect to the fund’s investment focus. The rule is designed to give
fund managers reasonable discretion to define terms in a fund’s name, and to allocate
investments reasonably into the 80% basket in accordance with the investment focus the name
conveys, which can be dependent on the context of the terms in a name. In particular, the final
amended rule requires that terms within a fund’s name must be consistent with the plain English

name suggests that involves analysis going beyond the frequency with which a word or phrase appears in a
document.

47

meaning or established industry use. We are including these provisions in the final amended rule
to provide fund managers with sufficient flexibility.
Separately, as discussed in the 2022 Proposal, when a fund’s name includes terms
suggesting an investment focus that has multiple elements, the fund’s 80% investment policy
must address all of the elements in the name (as all of the elements would be reflected in the
investment focus that the fund’s name suggests). 139 The Commission noted, however, that a fund
can take a reasonable approach in specifying how the fund’s investments will incorporate each
element. Commenters expressed broad support for the Commission’s approach, asserting that it
retains the appropriate level of flexibility for advisers to determine how best to allocate
investments under an 80% investment policy. 140 Where a fund’s name suggests an investment
focus that has multiple elements, the fund’s 80% investment policy must address each of those
elements. For instance, a fund with a name that references two or more distinct investment
focuses (e.g., “XYZ Technology and Growth Fund”) could have an investment policy that
provides that each security included in the 80% basket must be in both the technology sector and
meet the fund’s growth criteria. Alternatively, such a fund could instead have an investment
policy that provides that 80% of the value of the fund’s assets will be invested in a mix of
technology investments and growth investments, with some technology investments, some
growth investments, and some investments in both of these categories, with no minimum or
maximum investment requirements specified for either category. In addition, any fund that has a
name that suggests an investment focus would be required to adopt an 80% investment policy

139

See Proposing Release, supra footnote 2, at nn.50-51 and accompanying text; see also final rule 35d1(a)(2) (this provision reflects that a fund’s name may include multiple “terms” suggesting that the fund
focuses its investments in a particular way).

140

Fidelity Comment Letter; CFA Institute Comment Letter; Seward & Kissel Comment Letter.

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even if the fund’s name also contains a term that does not suggest an investment focus. For
example, the “XYZ Technology and Real Return Fund” would be required to adopt an 80%
investment policy to invest 80% of the value of its assets in the technology sector despite the
phrase “real return” also appearing in the name.
Moreover, it would generally be reasonable for a fund of funds or other acquiring fund to
include the entire value of its investment in an appropriate acquired fund when calculating
compliance with the 80% investment requirement without looking through to the acquired fund’s
underlying investments. For example, a fund of funds with the name “XYZ Industrials Fund”
with an 80% investment policy to invest in the industrials sector could count the entire value of
its investments in the “ABC Automotive Fund” when calculating compliance with the 80%
investment requirement, provided that the ABC Automotive Fund has an 80% investment policy
to invest in its subsection of the industrials sector. It would not be reasonable, however, for an
acquiring fund in these circumstances to ignore situations where the acquiring fund knows that
an underlying fund is not investing consistent with the acquiring fund’s investment focus. 141 In
such cases, the acquiring fund should take actions to address this departure as it otherwise would
to resolve a temporary departure from the 80% requirement under the final amendments.
d)

ESG-Related Terms

Consistent with the proposal, the final amendments will apply the requirement to adopt
an 80% investment policy to fund names that suggest an investment focus, including names with
terms indicating that the fund’s investment decisions incorporate one or more ESG factors. 142

141

An acquiring fund is not required to continuously monitor the investments of the underlying fund for
purposes of compliance with the amended names rule. For example, the XYZ Industrials Fund may rely on
the ABC Automotive Fund to comply with the ABC Automotive Fund’s 80% policy.

142

See final rule 35d-1(a)(2).

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Many commenters supported the inclusion of ESG terms in the expanded scope. 143 Some of
these commenters expressed concerns related to “greenwashing” among funds that have, or
purport to have, ESG- or sustainability-related characteristics. 144 Many of these commenters
asserted that given the developing market interest in, and regulatory and public scrutiny of, funds
that incorporate ESG factors in their investment objectives, to the extent a fund uses an ESGrelated term in its name, the fund should be required to adopt an 80% investment policy that
ensures it will invest in accordance with the investment focus its name suggests. 145
Conversely, several commenters opposed including names with ESG terms in the
expanded scope of the 80% investment policy requirement. 146 Many of these commenters
expressed similar concerns to those discussed above opposing the expanded scope in general,
including potential interpretive issues resulting from the perceived subjectivity of certain ESGrelated terms, and potential increased compliance burdens. 147 Some commenters also articulated
concerns that are unique to funds that use ESG terms. For instance, several commenters
expressed that the Commission’s ESG Disclosure Proposal would be better suited to address
investor understanding of ESG considerations than the proposed names rule scope expansion. 148

143

See, e.g., U.S. SIF Comment Letter; SIFMA AMG Comment Letter; Sierra Club Comment Letter; Public
Citizen Comment Letter; Comment Letter of Bonwood Social Investment (Aug. 16, 2022) (“Bonwood
Comment Letter”).

144

See NASAA Comment Letter; J.P. Morgan Asset Management Comment Letter; U.S. SIF Comment Letter;
Comment Letter of LTSE Services, Inc. (Aug. 16, 2022) (“LTSE Comment Letter”); CFA Institute
Comment Letter.

145

Id.

146

See, e.g., ICI Comment Letter; Calvert Comment Letter; Cato Institute Comment Letter; Invesco Comment
Letter; Robertson-Fisch Comment Letter.

147

See, e.g., TIAA-Nuveen Comment Letter; Calvert Comment Letter; ICI Comment Letter, Robertson-Fisch
Comment Letter. See generally supra section II.A.1.a) (responding to concerns from commenters related to
interpretive challenges and compliance costs connected to the proposed expansion of the 80% investment
policy).

148

See ICI Comment Letter; TIAA-Nuveen Comment Letter.

50

These commenters generally expressed more support for a disclosure-based framework rather
than a mandated 80% investment policy for fund names that communicate an ESG focus. In
addition, a few commenters expressed that certain terms, depending on the context, may not be
solely used for ESG investment strategies (e.g., “sustainable” or “impact”), or when read
together may provide a different meaning than when presented individually (e.g., “XYZ
Sustainable Growth Fund”). 149
We recognize that “ESG” and similar terms are expansive, incorporating three broad
categories of interest (environmental, social, and governance issues) for investors and asset
managers, with differing levels of focus on each particular issue, and different perspectives on
what attributes of an issuer or investment fit within this terminology. 1

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A739e2c784f3b82ea. Public record. Not legal advice.